Your pension in today’s money

What your projected pot is actually worth — after inflation

Current pension pot value

Monthly contribution (employee + employer combined)

£ / month

Years until retirement: 25

5 45

Annual investment return: 6%

2% 10%

Assumed annual inflation: 2.5%

1% 5%

calculate-how-much-your-pension-is-worth

Introduction

Pension projections are usually shown in nominal terms – the raw number your pot will reach at retirement, before inflation is accounted for. A pension statement telling you that your pot is projected to reach £380,000 in 28 years is technically accurate. It is also potentially misleading, because £380,000 in 28 years buys considerably less than £380,000 today.

At 2.5% annual inflation – roughly the Bank of England’s long-run target – prices roughly double every 28 years. That projected £380,000 is worth closer to £190,000 in today’s purchasing power. The number on the statement is not wrong. But it is not the number that answers the question most people actually have, which is: will I have enough money to live comfortably?

This calculator takes the nominal projected pot and converts it to today’s money using an adjustable inflation rate. It then estimates the annual retirement income that pot would generate using the 4% withdrawal rule, adds the state pension, and shows you both figures – what the number says, and what it actually buys.

The inflation slider is the most important input. The difference between planning with 2% inflation and 4% inflation over 25 years produces radically different real values from the same nominal pot. Most pension statements use 2% or no inflation assumption at all. Running the calculation at 2.5% and 4% gives a realistic range.

How to use this calculator

Enter your current pension pot value. This is the current transfer value shown on your most recent pension statement. If you have multiple pensions, combine them.

Enter your total monthly contribution. Include both your employee contribution and your employer contribution. This is the total going into your pension each month across all schemes.

Set years until retirement. Slide to the number of years from now to your planned retirement age.

Adjust the annual investment return. 6% is the default – a long-run expectation for a diversified equity fund. Pension funds also typically have fees; if yours is 0.5% per year, consider using 5.5% instead.

Set the inflation rate. 2.5% is the default, close to the Bank of England’s target. You can test higher rates (3 to 4%) to see a more conservative real-terms picture.

Read the real value. The headline figure is your projected pot in today’s purchasing power. The erosion panel shows how much inflation removes. The income table shows estimated annual retirement income in both nominal and real terms, combined with the state pension.

Frequently asked questions

What is the difference between nominal and real value?

Nominal value is the raw pound amount – the number your pension pot will show at retirement. Real value is what that amount is worth in today’s purchasing power, adjusted for inflation. If inflation averages 2.5% per year for 25 years, £1 in 25 years has the same purchasing power as approximately 54p today. Your nominal pot grows; your real pot grows more slowly, and over long periods the gap between them is significant.

Planning with the nominal figure means potentially overestimating how comfortable retirement will be. Planning with the real figure gives a more honest picture of what the money can actually buy.

What is the 4% withdrawal rule?

The 4% rule is a widely used rule of thumb for sustainable retirement income. It suggests that withdrawing 4% of your pension pot in the first year of retirement, and increasing the amount annually with inflation, gives a high probability of the pot lasting at least 30 years. A £300,000 pot generates approximately £12,000 per year on this basis. A £500,000 pot generates £20,000 per year.

The rule comes from US research (the Trinity Study) and has limitations – it assumes a particular mix of equities and bonds, does not account for all fee structures, and was calibrated to US market data. As a planning heuristic for the UK, it is useful but not precise. A financial planner can model a more tailored drawdown strategy for your specific situation.

Should I include the state pension in my planning?

Yes, and this calculator does. The full new state pension (2024/25: £11,502 per year) is shown as an addition to your private pension income in the income table. It is not adjusted for future inflation in the calculator – the state pension increases annually under the triple lock (highest of inflation, earnings growth, or 2.5%), which provides some inflation protection that the calculator does not attempt to model precisely.

Your state pension entitlement depends on your National Insurance record. You can check your forecast at gov.uk/check-state-pension.

What inflation rate should I use?

The Bank of England targets 2% inflation, but actual inflation has averaged higher than this over many periods. 2.5% is a reasonable central assumption for long-run planning. Using 3% or 3.5% gives a more conservative (pessimistic) view of real value that may be more appropriate for very long horizons. Using 2% is more optimistic.

The most useful approach is to run the calculator at 2% and 3.5% and treat the results as a range. Your actual retirement income in real terms will fall somewhere within that range, depending on how inflation actually evolves.

How does the chart help?

The dual-bar chart shows your pension pot growing over time, with grey bars representing the nominal value and indigo bars the real value. In early years the bars are close together. Over time the grey bar grows faster than the indigo bar – because inflation is compounding against you. The widening gap between the bars is the visual representation of purchasing power erosion. It makes clear that the longer the horizon, the more important the inflation adjustment is.

What about defined benefit (final salary) pensions?

This calculator is designed for defined contribution (DC) pensions – money purchase pots that grow with contributions and investment returns. Defined benefit (DB) pensions pay a guaranteed income in retirement, typically calculated as a fraction of final or career average salary. If you have a DB pension, your pension statement will show a projected annual income rather than a pot value. The inflation adjustment still applies – a projected DB income of £15,000 per year is also worth less in real terms than it sounds if retirement is 25 years away. But the input structure of this calculator does not match DB pensions directly.

The information on this site is for educational and informational purposes only. Nothing on Be More Peter constitutes financial advice, and nothing should be treated as such. The calculators, articles and tools on this site are designed to help you understand financial concepts and run indicative numbers - they are not a substitute for professional advice tailored to your specific circumstances. Before making any financial decision - including decisions about mortgages, pensions, investments, savings or insurance — you should seek independent financial advice from a qualified adviser who is authorised and regulated by the Financial Conduct Authority (FCA). Calculator results are estimates based on the information you enter and the assumptions built into the tool. They are illustrative only and should not be relied upon as accurate projections. Rates, thresholds and rules change regularly - always verify figures with an appropriate professional or official source before acting on them. Be More Peter is not authorised or regulated by the FCA. The content on this site does not constitute a financial promotion.